CA Ankith Jain (Chartered Accountant) (973 Points)
17 March 2015Dear all,
My dad has retail business, the net profit declared by him was around 5% of sales, but while filing Income tax return, a CA suggested that the net profit should be atleast 8% of net profit as per Sec 44AD. My question is net profit itself is around 5% as per books of accounts maintained, then why he should pay on 8% (He is maintaining proper books of accounts and also claiming deduction u/s 80C). Please suggest.
Vishal Goel
(Chartered Accountant)
(1688 Points)
Replied 17 March 2015
Notwithstanding anything contained in the foregoing provisions of this section, an eligible assessee who claims that his profits and gains from the eligible business are lower than the profits and gains specified in sub-section (1) and whose total income exceeds the maximum amount which is not chargeable to income-tax, shall be required to keep and maintain such books of account and other documents as required under sub-section (2) of section 44AA and get them audited and furnish a report of such audit as required under section 44AB.
CA Ankith Jain
(Chartered Accountant)
(973 Points)
Replied 17 March 2015
Turnover is below 1 crore and hence no Tax Audit applicable. So u mean to say if to claim below 8% then tax audit is compulsory irrespective of turnover? the what if my net profit was negative, even then 8% was applicable?
Intermediate Student
(-)
(644 Points)
Replied 17 March 2015
Vishal Goel
(Chartered Accountant)
(1688 Points)
Replied 17 March 2015
What if the profits of an assessee engaged in eligible business are actually less than eight percent of the turnover or gross receipts of the business?
Ans: If an assessee claims that his profits and gains from eligible business are less than 8% of the gross receipts and whose total income exceeds the maximum amount not chargeable to tax, the asseessee shall maintain the books of account as prescribed U/S 44AA and get them audited under section 44AB of the Act.
Here the catch lies in the words ‘and whose total income exceeds the maximum amount which is not chargeable to income-tax’
Since the words start with ‘and’ therefore both the conditions need to be fulfilled for an assessee to be required to get his accounts audited u/s 44AB.
Vishal Goel
(Chartered Accountant)
(1688 Points)
Replied 17 March 2015
In case of loss, since there is no income, therefore it does not exceed the maximum amount not chargeable to tax and so the second condition mandating tax audit u/s 44AB r/w section 44AD is not satisfied and therefore the assessee is not required to get the accounts audited u/s 44AB.
Vishal Goel
(Chartered Accountant)
(1688 Points)
Replied 17 March 2015
Therefore, if turnover or gross receipt does not exceed Rs 100 lakh and you are declaring income of more than 8% of turnover, tax audit will not be applicable.
Vivek Singh
(Student CMA)
(107 Points)
Replied 17 March 2015
Vishal Goel
(Chartered Accountant)
(1688 Points)
Replied 19 March 2015
Hello vivek,
A person is required to get his books of accounts audited as per provisions of section 44AB if he satisfies any of the following conditions:
Please inform me if I am wrong.
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